Futures Flat; Cliffs Natural Resources, Berkshire Hathaway Rising

By Sam Mamudi

Futures for the Dow Jones Industrial Average and Standard & Poor’s 500 index are essentially flat this morning, ahead of another week’s trading. The major stock indexes all closed at record highs Friday.

Leading the S&P premarket is Cliffs Natural Resources (CLF), up more than 4% after the stock was upgraded at FBR to Outperform.

As analyst Mittesh Thakkar wrote:

Last week, we hosted several investor meetings with Cliffs Natural Resources, Inc.’s (CLF) management team and came away more constructive on its ability to withstand weak iron ore prices. We believe Cliffs has multiple levers to pull including (a) reducing expenses by curbing spending on chromite; (b) scaling back 2014 capex; (c) reducing operating costs in Canadian business; and (d) monetizing assets to boost liquidity, if needed. We also believe that Cliffs’ U.S. operations are well positioned to withstand potentially higher domestic supply, and the company has the ability to boost reserves in Australia. Furthermore, we believe recent trends in China (low port inventories, higher domestic prices, and profitability of steel mills) are also supportive of iron ore imports. Finally, CLF shares have declined 49% year to date versus a 10% gain for the broader market, which has also made valuation attractive based on our expectations of a $115/ton iron ore price in 2014. Accordingly, we are upgrading shares of CLF to Outperform from Market Perform and maintaining our price target of $28/share based on 7.0x 2014E EV/EBITDA.

Berkshire Hathaway said first-quarter profits had jumped more than 50 per cent from the year-ago period because of insurance gains and overall growth from the $268bn conglomerate’s diverse mix of business.

The results, which came after Berkshire A shares closed at an all-time high of $160,294, were published ahead of the group’s annual meeting when tens of thousands of investors descend on Omaha, Nebraska, to hear Warren Buffett and his long-time business partner Charlie Munger answer questions from shareholders, journalists and analysts.

The company and its competitors are still feeling the effects of the worst drought in 50 years in the U.S. Midwest last year that pushed up feed costs and reduced cattle supplies.

Tyson forecast sales of $34.5 billion for fiscal-year 2013, down from its previous forecast of $35 billion. Analysts expected $34.49 billion, according to Thomson Reuters I/B/E/S.

Tyson’s net income fell 43 percent to $95 million, or 26 cents per share, from $166 million, or 44 cents per share, a year earlier. On an adjusted basis the company earned 36 cents per share. Sales rose by just under 2 percent to $8.42 billion.

Analysts on average had expected earnings of 45 cents per share, on revenue of $8.58 billion, according to Thomson Reuters I/B/E/S.

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The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.